Texas State Budget: Balancing Act or Funhouse Mirror?

Last week we dug into Texas Comptroller Glenn Hegar’s revenue update for the 2018-2019 state budget cycle. Compared to his January forecast, Comptroller Hegar now predicts more rapid economic growth. But the details of the revenue update show that economic growth alone won’t fix the significant fiscal challenges facing Texas, such as our seriously underfunded public schools. It is only through “smoke and mirrors” accounting tricks like delayed transfers for highways and reliance on unspent dedicated funds that the General Revenue part of the budget avoids being almost $7 billion in deficit. This doesn’t even include the supplemental funding that lawmakers will need to approve in 2019 to cover Medicaid costs and Hurricane Harvey damages.

Now Comptroller Hegar has issued his detailed report showing how $5.3 billion in legally earmarked (“dedicated”) revenue will pile up, unspent, by August 2019. These dedicated funds are collected through special mechanisms like a tax on sporting goods sales to support state parks, or parole and probation fees that help fund sexual assault programs. State laws have created the various revenue sources, but there is no state law that says all the revenue has to be spent.

As a result, budget writers often leave dedicated funds unspent to cover holes in the general budget. This budget cycle’s $5.3 billion is significantly more than the $3.5 billion in unused but dedicated revenue used to help balance the 2016-17 budget. Many lines in the “General Revenue Dedicated Accounts” report show how much more state support could have been directed to a wide range of state services.

For example, the first page of the report shows almost $72 million in Game, Fish, and Water Safety revenue and $60 million in State Parks revenue that will not be used for their intended purposes. Instead the combined $132 million will help offset the rest of the General Revenue budget that mainly goes to education and health care. You might think, “Well, parks aren’t funded, but at least our priorities are taken care of.” But education and health care are also areas that lawmakers chose to underfund.

The single largest instance of budget trickery (sometimes called “GR-D hoarding”) is the $1.7 billion that will accumulate in the Texas Emissions Reduction Plan (TERP) account by the end of 2019. These funds, when the Legislature actually appropriates them, are used to reduce environmental pollution. But $1.7 billion will just remain unspent to help offset the state’s general budget. Even much smaller balances, such as the $49 million in the Sexual Assault Program, will anger advocates who would rather see those dollars used for their intended purposes:

sexual violence awareness and prevention campaigns;

victims of human trafficking;

sexual assault nurse examiner programs;

[programs that] increase the level of sexual assault services in this state;

victim assistance coordinators;

technology in rape crisis centers.

About $685 million of the increase in GR-D balances is a result of House Bill 3849, enacted by the 2017 Legislature in the regular session. This legislation undoes most of the progress made in 2015’s House Bill 6 to reduce reliance on this type of budget shenanigans. With passage of HB 3849, various public university accounts will once again count toward balancing the overall budget (a total of $469 million), as well as other smaller funds. Unlike TERP or Sexual Assault Program balances, using the higher education balances for certification is not as concerning because the money does eventually get spent by the universities in the next fiscal year.

Why should the details of this new Comptroller report matter to anyone besides state budget wonks? For starters, as mentioned earlier, many of the balances represent underfunded state services that are not receiving dollars legally earmarked for those services. The hundreds of fees, fines, and other revenue sources that were created to address specific causes like state parks and sexual assault prevention are instead being used to make up for decades of inadequate General Revenue – an inadequacy that worsens whenever state lawmakers cut taxes.

The “decades-long bad habit in our state’s budget process,” as it’s been called, started in 1991 when a process called “funds consolidation” was approved. But it grows every time the Legislature decides that tax cuts take priority over quality schools and health care. Using massive GR-D balances to cover up the gaping hole in state revenue also makes it more likely that additional tax cuts will be considered, such as 2017’s short-sighted, proposed phase-out of the franchise tax. Legislators who write the budget, and the taxpayers who hold them accountable, need to understand the differences between state budget gimmicks and a truly sustainable foundation for our public education and health care systems.

As concerned Texans, we will all be watching as the 2018-2019 budget gets implemented to ensure that critical services like health care and education get the real funding they deserve.

Eva DeLuna Castro oversees the Center's work on fiscal and budget policy. She joined the Center in 1998 and focuses primarily on the state budget. Before coming to the Center, she was an Analyst for the Texas Comptroller of Public Accounts, researching various policy issues related to state revenue and spending. She earned a Bachelor of Arts in History and Literature, cum laude, from Harvard University in 1988 and a Master of Public Affairs from the LBJ School of Public Affairs at The University of Texas at Austin in 1997.